Turning the Tide: Somalia’s Bold Path to Fiscal Resilience and Public Service Delivery
Issue 4
Somalia’s fiscal and service delivery challenges are no secret. If you’ve been following recent discussions or if you’ve been reading my Substack posts, you’ll know the situation has been tough. Really tough. But here’s the thing: the story has been improving too, and not just marginally. The real question now is how we can accelerate this progress and lock in the reform momentum. How do we build a system that’s not only fiscally resilient but also capable of delivering essential services across the country?
Recent Achievements
Let’s start with the wins because there are plenty. On the fiscal resilience front, Somalia hit a historic milestone with domestic revenue reaching $369.4 million in 2024, a 12% jump from the previous year and 6.7% above target. Budget execution also improved significantly, hitting 83.9%, and for the first time since the federal government’s formation in 2012, there were no revisions to the original budget. That’s a big deal – it signals stronger planning and growing credibility. The fiscal deficit was kept in check at just 0.4% of GDP, and it’s projected to shrink even further to 0.21% in 2025, aligning neatly with IMF program targets.
Revenue mobilization and tax reform have also seen real traction. Income tax collections surged by 48%, thanks to expanded taxpayer registration and digitization. Sales tax revenue rose by 13.3%, supported by mobile money integration and better enforcement in local markets. Customs revenue climbed 10%, reaching $169.2 million, aided by the rollout of the Somalia Customs Automated System (SOMCAS). On the legislative side, key reforms were passed, including the Income Tax Bill, an expanded Sales Tax Act, and new customs and revenue administration regulations.
Public Financial Management (PFM) is another area where momentum is building. Program-Based Budgeting (PBB) made a comeback in the 2025 budget for 12 pilot entities, aiming to sharpen performance orientation. Payroll integrity was bolstered through full integration into the national payroll system. And transparency? The Open Budget Index score jumped from a mere 3% in 2019 to 37% in 2023, with expectations for even more progress as public participation and transparency continue to improve.
Intergovernmental fiscal coordination is also gaining ground. The Intergovernmental Fiscal Federalism Forum (IGFF) reached agreements on unified Taxpayer Identification Numbers (TINs), state-level sales tax implementation, and harmonized fiscal reporting formats. Fiscal transfers to Federal Member States (FMSs) were made based on agreed formulas—an important step forward for fiscal federalism.
On the service delivery side, the numbers speak volumes. In education, 2,600 teachers were recruited and over 2,000 girls received university scholarships. In health, 300 facilities were renovated and 1,370 female health workers trained under the Marwo Caafimaad program. Social protection reached 200,000 households through the Baxnaano cash transfer program. Infrastructure saw 31.4 km of roads completed across three cities, and capital expenditure is set to triple in 2025 to $164.8 million. Digital transformation is also picking up pace, with over 5,000 businesses registered via e-platforms and 97,000 citizens signed up for national IDs.
Looking ahead, the fiscal strategy is ambitious but grounded. Revenue and grants are projected to hit $1.32 billion in 2025, a 27% increase from 2024. Domestic revenue alone is expected to grow by 24.3%, reaching $430.3 million. Capital expenditure will triple, with a focus on infrastructure, human development, and security. The Medium-Term Revenue Roadmap (2024–2027) and the National Transformation Plan (2025–2029) are in place to guide policy and reform sequencing. The only downside is the continued need for external aid to sustain the above progress.
Nonetheless, these achievements reinforce the case for medium-term planning, deeper institutional reforms, and a shift toward outcome-oriented fiscal frameworks.
Strengthening Fiscal Resilience and Service Delivery: Medium-Term Fiscal Planning
I’ve long argued that the answer to fiscal resilience lies in integrated, medium-term planning and deeper institutional reforms. Now, I get it, medium-term fiscal planning might sound like a luxury in Somalia’s current fragile context. But hear me out. Let’s first understand why annual budgeting has become the default, and why that’s not enough.
Somalia’s PFM system is still finding its feet. Yes, there’s been progress – like publishing a Medium-Term Revenue Roadmap and pushing key legislation – but implementation is slow, and capacity is limited. Budget execution is patchy in places, especially at the local level. Revenue collection has improved thanks to tools like SOMCAS and mobile-based tax systems. But the numbers are still low, and enforcement is weak. Most of the economy operates informally, making broad taxation a real challenge.
On the spending side, the budget is mostly eaten up by recurrent costs, with little left for infrastructure or human capital. Some reforms are underway, but they’re not enough to shift the balance. Add to that Somalia’s complex federal structure, political fragmentation, and the constant strain of security risks and climate shocks. The donor landscape is fragmented and volatile. Forecasting tools are weak, and the data infrastructure needed for multi-year planning just isn’t there yet.
So yes, the challenges are real and significant. But that’s exactly why we need to be more ambitious, not less, in building robust fiscal resilience. There’s no better time to start than now, with a Medium-Term Fiscal Framework (MTFF) grounded in smart, credible fiscal anchors.
Tools for Transformation: MTRS and MTEF
To get to a viable MTFF (which is our long-term vision), Somalia needs to roll out two key tools within the coming few years: a Medium-Term Revenue Strategy (MTRS) and a Medium-Term Expenditure Framework (MTEF). These should be practical and context specific and should be developed while the new revenue roadmap is being implemented.
The MTRS will sharpen our focus on mobilizing domestic resources in a sustainable way. It will set realistic revenue targets, laying out a clear policy roadmap (think VAT, personal income tax (PIT), CIT etc.), and will push for administrative reforms like digitalization and better compliance. It will also force us to update the remaining weaknesses of our legal framework. And more importantly, it will bring in key stakeholders, from donors to citizens. It can be a powerful tool that can improve accountability and the sequencing of reforms - it could be a game changer.
The MTEF, on the other hand, will link multi-year budgeting to national priorities such as the NTP. It will set rolling expenditure ceilings, prioritizing sectors like health and education, and integrating with annual budgets. It’s about making spending predictable and performance-oriented but also reducing aid dependency.
Of course, Somalia faces hurdles here too - like weak links between recurrent and development budgets, overoptimistic revenue forecasts, and poor disbursement predictability. But these are challenges we can tackle with the right tools and mindset (think back to where we were in 2019 in terms of economic and financial reforms!).
Rethinking Fiscal Anchors in Fragile States such as Somalia
Now, let’s talk about fiscal anchors because the tools for fiscal transformation above can only work once we have mastered the art of designing appropriate anchors.
Fiscal anchors are tools Somalia has become familiar with through its engagement with the IMF. These include expenditure ceilings, revenue floors, and a zero new borrowing rule. While they may sound technical, they’re grounded in solid economic theory, from dynamic general equilibrium models to the fiscal theory of the price level. At their core, fiscal anchors are designed to build credibility and promote macroeconomic stability. They also serve as commitment devices to help governments resist short-term political pressures, drawing from the Kydland-Prescott framework that champions rules over discretion in economic policymaking.
But here’s the catch: these rules can be too rigid for a fragile context like Somalia. Strict expenditure ceilings might stop the government from responding to emergencies like droughts or floods. Revenue floors and borrowing constraints might be unrealistic given the limited tax base and fragmented fiscal authority. And focusing too much on restraint could crowd out essential development spending.
Too often, these fiscal anchors are input-based (at least in the case of Somalia), focused on ticking boxes and meeting numerical targets rather than achieving real-world outcomes. Somalia has consistently met these benchmarks under the IMF program, yet tangible improvements in service delivery remain elusive. It’s time to shift toward outcome-based rules that prioritize results - for example, boosting tax compliance, strengthening the social contract, and ultimately delivering public services to X number of the Somali people etc. Outcome-based rules can strengthen both vertical and horizontal social cohesion by making the state more responsive to its people.
Another major issue is political and institutional fragmentation. Fiscal rules assume a unified budgetary authority, which Somalia lacks. The federal member states (FMS) operate with significant autonomy, and coordination is often weak. Revenue-sharing agreements exist but are inconsistently implemented, and intergovernmental fiscal forums are still evolving.
To make fiscal anchors work in Somalia, we need to rethink and reform them. For example, instead of rigid expenditure ceilings, we could introduce some basic cyclically-adjusted ceilings or escape clauses for emergencies. Revenue floors should be realistic and linked to capacity, with technical assistance support (in many cases, they are just not ambitious enough!). The zero new borrowing rule could be relaxed to allow targeted concessional borrowing for infrastructure and resilience investments (once some strict governance requirements are met!). And rather than applying rules uniformly, we could develop differentiated rules for the federal and state levels, with a focus on coordination (at the moment, FMSs do not exist fiscally speaking!). Finally, we should shift from input-based targets to performance-based budgeting that focuses on real outcomes (in a fragile context, this can be a game changer!).
There are also key oversights we need to address. Somalia lacks a formal intergovernmental fiscal framework, which makes it hard to enforce fiscal anchors at the subnational level. Revenue authority is fragmented, with some FMS collecting and retaining revenues independently. Budgeting is not coordinated, and FMS often operate outside the federal budget process. Without a shared fiscal compact, fiscal rules may be seen as externally imposed, leading to resistance and non-compliance.
To build a more resilient and responsive fiscal system, Somalia should also embrace risk-informed PFM - things like contingency budgeting, disaster risk financing, and better revenue forecasting. In other words, we should start thinking big!
Service Delivery: From Budgets to Impact
Improving service delivery should be the number one priority. That means linking budgets to sectoral priorities through the MTEF, using rolling ceilings and performance-based allocations. This means that the NTP is no longer something donors fund but something funded and owned by the government. It also means exploring different delivery models, including partnerships with non-state actors and community-based approaches. And we must ensure accountability and inclusion, with citizen engagement, grievance redress mechanisms, and gender-sensitive budgeting, among other things.
All of this needs to be integrated and sequenced properly. Aligning the MTRS and MTEF with fiscal anchors, building PFM systems, strengthening capacity, updating legal frameworks, and coordinating donor efforts are all part of the puzzle.
In my view, scenario-based planning can help us understand trade-offs, like how to reach 30% of the population with basic services by 2035 under different revenue scenarios.
So, what’s the way forward?
Here are some key policy recommendations: adopt a credible MTRS with stakeholder buy-in; institutionalize the MTEF with binding ceilings; embed fiscal anchors in a more formal way (e.g., legal/regulatory framework?); strengthen intergovernmental coordination; and use service delivery as a tool for rebuilding trust.
Ultimately, escaping the fragility trap hinges on strengthening the social contract and earning the trust of the Somali people. Without that foundation, even the most ambitious economic reforms and achievements will remain meaningless!
Somalia’s journey toward fiscal resilience won’t be easy, but it’s one worth taking. And it starts with ambitious medium-term planning, smart fiscal tools, and a commitment to reform. We should not wait for perfect conditions. In a fragile context, transformational policy actions are a necessity!